Laos’ Xayaburi dam project: Transboundary game changer

Planned construction of up to 12 mainstream dams on the Lower Mekong is testing the strength and effectiveness of a 1995 treaty commitment by Cambodia, Laos, Thailand, and Vietnam to cooperative and sustainable water resources development under the framework of the intergovernmental Mekong River Commission (MRC). China and Myanmar (Burma), which also share the river, are only observers within the MRC. Several developments provide grounds for cautious optimism that the transboundary ecosystems and resources of the Lower Mekong can be effectively and sustainably managed.

The Laos government’s approval of a highly controversial hydropower dam project in the country’s northern Xayaburi Province became the primary trigger for these developments. The regional reaction to the Xayaburi dam project thus far makes clear that the seriously skewed distribution of the transboundary costs and benefits of mainstream dams has the potential to be a game-changer for regional governance1.

Energy-hungry China’s construction of a massive cascade of eight dams on the upper half of the Mekong already poses a direct and significant threat to the future of the river and the livelihoods of 65 million people—mainly in the lower, Southeast Asian half of the river. The first four completed Chinese dams are already altering the river’s hydrology and impeding the flow of nutrient-rich silt that sustains soil productivity and nurtures fisheries downstream, as well as keeping the sea at bay in the Mekong Delta.

The proposed Lower Mekong dams would block the migration of hundreds of fish species that are an important source of food and income, as well as cause the extinction of several species such as the giant Mekong catfish. In return, all of the power generated would constitute only about six to eight percent of the total estimated electrical demand in the Lower Mekong Basin (LMB) by 2030. Most of the power would go to Thailand, which has hardly begun to institute energy efficiency measures that could make the mainstream dams unnecessary.

Mekong Mainstream Dams

All of these threats are compounded by the ongoing and expected future effects of climate change; specifically, rising sea levels, shifting rainfall patterns, and more frequent extreme climate events such as drought, flood, and coastal inundation from cyclonic storms. Climate change has not been factored into hydropower development plans either in Yunnan or the Lower Mekong countries, where scores of large dams have already been built or at various stages of planning and construction on tributaries.

The biggest obstacle to a shared future for the Mekong Basin may be the inevitably inequitable distribution of the costs and benefits of mainstream dams, should they be built, among communities and countries. At the same time, the “transboundary difference” radically changes the geopolitical dynamics in a manner that gives reason for cautious optimism.

Developing country governments regularly ignore the costs borne by poor communities who subsist on a natural resource to gain a perceived larger national benefit. It’s another matter when a project largely benefits country A and the environmental and socioeconomic costs are disproportionately borne by countries B, C, and D.

The upstream countries, China and Laos, have the most mainstream hydropower potential, and are positioned to reap most of the benefits of damming the river. The heavy socioeconomic costs will be disproportionately borne by downstream countries, especially Cambodia, Vietnam and riverine parts of Thailand.

Estimates of the costs and benefits of the proposed Lower Mekong dams are highly sensitive to assumptions regarding key economic variables. The MRC’s Basin Development Plan (BDP2) estimates a cumulative net economic benefit of $33.4 billion over 20 years2. An extensive Strategic Environmental Assessment (SEA) commissioned by the MRC used the same data base, yet found that the risks and uncertainties are so great that it urged a ten year moratorium on mainstream dam construction to allow further study of these risks3.

Floating house Tonle Sap

Another study commissioned by the US Agency for International Development (USAID) carried out a “sensitivity” analysis of the BDP2 estimates and reached an even more alarming conclusion. A range of assumptions were applied to the BDP2 data for: the current market value of lost fisheries, the value of wetlands, and the discounted net present value of lost environmental services. Radically different estimates emerged. The total economic benefits for 11 dams ranged from an unimpressive $6.6 billion to a staggeringly negative $274.4 billion. Whereas all four MRC countries had positive total economic benefits under the BDP2’s assumptions, only Laos has a net benefit under the assumptions in the later study. The worst case impacts ranged from -$128.9 billion for Thailand, -$110.3 billion for Cambodia, and about -$50 billion for Vietnam4.

The drumbeat of negative findings has attracted the attention of Laos’ neighbors and emboldened civil society. Vietnam, in particular, actively encouraged public meetings and media coverage of the threat that mainstream dams posed to the Mekong Delta, which is already suffering the effects of pollution, poor water management, and a rising sea level.

Fortunately, the 1995 treaty that created the MRC includes procedures for notification, prior consultation and agreement (PNPCA) in the case of mainstream dams. Beginning in October 2010 the MRC organized a series of public meetings throughout the region that was much criticized for being inadequate. Nonetheless, when representatives of the four countries met in Vientiane, Laos, in April 2011, after the conclusion of the specified 6-month review period, Vietnam, Cambodia, and even Thailand declined to give their approval, citing concerns about the environmental and socioeconomic impact of the project on their countries. In a subsequent meeting with the Prime Minister of Vietnam and at a meeting of all four prime ministers in the wings of the ASEAN Summit in Bali, in November 2011, the Lao Prime Minister committed to an indefinite suspension of the project pending further studies and agreed to seek funding from Japan for that purpose. The four governments formally ratified the agreement at a special meeting of the MRC Council on December 8, in Siem Reap, Cambodia.

Whether the delay of the Xayaburi project will be a permanent turning point towards cooperative and sustainable development depends critically on follow-up action. The construction of access roads to the site is well advanced and continued despite the announced suspension of the project by the Lao government.

The suspension of the Xayaburi project was thrown into question when the Thai development company announced in early April that it had signed a contract with its own Lao-registered subsidiary to begin dam construction on March 15, 2012. Not only did environmentalists and civil society cry foul; in an unusual public show of regional discord Vietnam’s representative to the MRC charged that the action contradicted both the Lao government’s commitment and the subsequent agreement of the MRC Council. Cambodia has raised the possibility of legal action.

The MRC, its member countries, and the international donor community must support comprehensive new analysis of the potential costs and benefits, and do so quickly. In the best case, a new norm, a “Mekong Standard”for project planning, engineering, and environmental and socioeconomic impact assessments will emerge and form the basis for regional decision making5. The most urgent need is for the US, Japan and other “friends of the Mekong” countries to provide the resources to support further studies. In April 2012, Japan announced that it would fund such a study; what happens next is unclear. Laos cannot be expected to keep the project suspended if the new studies of mainstream dam impacts do not begin soon, but the issue would be moot if dam construction is already underway.

Dr. Cronin is the Director of the Southeast Asia program at the Stimson Center in Washington DC. He works on transboundary and non-traditional security issues in the Mekong Basin and Southeast Asia, from a political economy perspective. He is the lead co-author of Mekong Turning Point: Shared River for a Shared Future5, which provides the basis for the present article and was published in February 2012. Dr. Cronin also co-authored a previous report on mainstream Mekong dams in 2010, entitled Mekong Tipping Point, and has also recently written or co-authored several articles on Thailand’s regional relations. He joined Stimson following a long career in the Congressional Research Service and has previously taught at John Hopkins University and Chuo University, Tokyo. Dr. Cronin can be contacted at rcronin@stimson.org.

The views expressed in this article belong to the individual authors and do not represent the views of the Global Water Forum, the UNESCO Chair in Water Economics and Transboundary Water Governance, UNESCO, the Australian National University, or any of the institutions to which the authors are associated. Please see the Global Water Forum terms and conditions here.